Farm Loan Waivers Severely Undermine Credit Culture, Says RBI Governor

Mumbai: Reserve Bank of India (RBI) Governor Shaktikanta Das on Monday said generalised loan waiver is credit negative, which undermines the credit culture in the system.

Das asserted that the relief related to agriculture loans should be a targeted one. "Any kind of generalised loan waiver is credit negative. It definitely undermines credit culture," he said.

Such write-offs of loans affect the capability of farmers to access debt for the next season in time, he said.

The RBI governor also said that any kind of relief to farmers because of natural calamities or due to other kinds of distress should always be targeted.

A few state governments have announced farm loan waivers in the recent past.

"What we stress with the state governments is that the waiver amount or the write-off amount should be released immediately to the banks because unless banks get the money, the capability of banks to provide loans to the next crop cycle will be affected," he said.

Talking about the review of the monetary policy framework, the governor said soon a round-table discussion will be arranged with various stakeholders on the same.

"We are carrying out an internal review of the monetary policy framework. Sometimes towards the end of June, we would be holding a round table with experts including economists, policymakers, various stakeholders, analysts and researchers in this area," he said.

"Based on the discussions, we will fine-tune our understanding of how the framework has worked and see how we move forward," he said.

In a bid to keep inflation under a specified level, the government in 2016 decided to set up the Monetary Policy CoRmmittee headed by RBI Governor entrusted with the task of fixing the benchmark policy rate (Repo Rate).

The six-member panel, which had its first meeting in October 2016, was given the mandate to maintain annual inflation at 4 per cent until March 31, 2021 with an upper tolerance of 6 per cent and lower tolerance of 2 per cent.

In terms of GDP growth, the governor said 2019 was an unusual calendar year as nobody thought that the growth will decelerate to 5 per cent.

However, the Reserve Bank was among the early ones who witnessed that the growth momentum was slowing down, he said.

"I can say that we were not as surprised as others as we moved forward in the subsequent months because right in February 2019 we saw that the growth momentum was slowing down and therefore we started cutting the rates," Das said.

Since February 2019, the RBI has cut the Repo Rate by 135 basis points.

He said though the RBI depends on the data released by the Central Statistics Office for its growth projections, it also conducts its own surveys.

"So far as data is concerned, we do go by the CSO data. We have no reason to doubt the credibility of the data but the RBI also conducts many surveys including consumer survey and business confidence surveys, and mine a lot of data based on them," he said.